Energy chiefs bullish on renewable support

www.environmental-finance.com
London, 21 May

Senior executives in the energy industry predict that subsidies for renewable energy will increase during the next year, despite economic troubles that have plagued the globe, according to a KPMG mergers and acquisitions (M&A) report. 63% of the 200 executives interviewed expected a growth in subsidies, compared to 37% in last year's survey. Andy Cox, energy partner at KPMG in London, said the increase was attributable to US support of green projects.

"US political announcements on supporting green initiatives have bolstered other international commitments, which in turn have had a profound effect on the global energy industry," Cox said. The report from consulting and accounting firm KPMG also notes that the nature of M&A activity in renewable energy has changed significantly.

"The recession has changed the deal-making landscape dramatically," Cox said, "with the key beneficiaries seemingly being larger utilities and power companies, who are well placed to take advantage of any opportunistic disposals." KPMG said that investors are switching their attention to productive operating assets, at the expense of undeveloped ones. Executives are now focusing on deals considered lower risk, and the number of direct asset acquisitions has become rare, after nearly doubling from 2007 to 2008.

Cox said that the size of deals would also likely change. "The age of the multi-billion dollar deal seems to be at an end, at least in the short term," Cox said. Of those surveyed, 49% believe that the volume of deals in excess of $1 billion will decrease, and only 24% of companies expect to invest more than $100 million in renewables M&A in the next 12 months, compared to 39% last year. 58% of respondents said that their companies would spend less than $50 million this year.

The report also shows that 42% of the executives intend to invest in the US, while 24%% were considering India, 22% China and 21% Canada. KPMG said that economic stimulus spending aimed at the renewable energy sector in the US and China was attracting attention. "The United States is starting to look more attractive to foreign investors with stable government stimulus creating the potential for a more profitable deal environment," Cox said.

In a further show of optimism, 44% of the respondents think the Copenhagen climate change talks in December will culminate with a significant breakthrough - leading to increased investment - while just 18% disagree. In all, 78% of the executives interviewed believe that renewable energy projects are still economically viable, despite collapsing fossil fuel and commodity prices and the credit crisis, Cox said.

The 200 senior executives surveyed are involved in power generating businesses, renewable energy suppliers, energy distributors, oil and gas majors, and banks from across the global energy industry. Most respondents were from Europe (32%), North America (30%) and Asia-Pacific (26%), with the remainder from Latin America, the Middle East and Africa.